One of America’s largest asset managers says nearly every corner of the US stock market is overpriced — except for one sector.
In a new Bloomberg Technology interview, Empower chief investment officer Marta Norton says valuations across most industries now sit in the ninth and tenth deciles relative to history, a level that historically pressures three-year returns.
She notes that while technology has led markets higher, its gains have spread across multiple industries, making it harder for earnings alone to drive the next leg of growth.
“When we look under the hood in technology, we really see it across industries. Now, that doesn’t mean that these stocks can’t grind higher. And if we do see an upside surprise within earnings, potentially that could push the stock market even further. I think the idea here is that there’s just low immunity. So if we were to get an earnings season that people expect, I think that’s a lot harder to move the stock market.”
Norton highlights healthcare as the lone bright spot, a sector she says remains reasonably priced and could benefit from the adoption of AI.
“I will do a shout-out to health care. This is something we’ve been surfacing since the summer. This is one of those areas that is more attractively priced. It has a lot of problems that it faces, but it also has the potential to benefit from something like AI. So that’s one of those areas that we’re looking to in this environment.”
Turning to artificial intelligence, Norton warns that investors are beginning to see a change in how the AI buildout is being financed, and that it may be a red flag.
“I guess the complacency around the AI trade has been that this is largely being funded by very well-capitalized, very strong hyperscalers. And the companies are not taking on debt. They are using what they have to extend into this space.
But now, in the most recent month, we are beginning to see more debt issuance. When you think about the scale of investment and the ratio of capital to revenue that we’re seeing, even at the hyperscalers, it does argue that we’re going to have to use a broader range of financing to meet some of the targets that we have. And of course, that’s the signal that folks are looking for, that there is an AI bubble.”
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